Trade agreements in the Pacific 

Globalisation is coming to the Pacific. But are the islands heading for a free-trade paradise; are they forever lumbered with their colonial inheritance; or is there a middle way - a Pacific way? This article attempts to untangle the numerous trade agreements with the aim of focussing discussions to address such fundamental questions as: What will the islands export in order to benefit from trade deals? Are there enough points of different for countries to specialise and trade competitively? What are the benefits of deals with Canberra and Wellington? Can multilateralism bolster commerce with the wider world?

Slaves to style the islands are not. Yet lately Pacific island countries have been a reluctant follower of the global fashion for freer trade.  Intra-regional pacts aim to boost trade between island nations. Talks are scheduled with Australia and New Zealand. Europe is trying to strike a deal. And two Pacific island countries plan to join the World Trade Organisation.

The region won political independence later than most colonies. The new island states rightly wanted to avoid moving from political and social subservience, to economic subordination. The latter was a realistic prospect given the lack of maturity of most Pacific economies, and the threat of cheaper and better quality foreign imports.

Imposing tariffs had the impact of protecting Pacific producers from foreign competition. It also had the advantage of raising significant income for governments. For 12 of the 14 island states of the Pacific Islands Forum (Pacific island countries), import duties comprised an average of one third of total tax revenues.  But tariffs also delayed recognition of the reality of inefficient and expensive local industries.  

When European powers left the region in the 1970s, they bequeathed a legacy of preferential market access arrangements and subsides. The Lomé conventions defined Europe’s economic relations with its former colonies until 2001, and provided duty-free access for Pacific imports to Europe. Special Stabex funding was also provided, which helped with the establishment and operation of  commodities marketing boards, and subsequently reinforced their monopsonist positions (the market condition that exists when only one buyer will purchase the products of a number of sellers). 

For a long time after independence, additional aid, particularly in Melanesia, went into established commodities such as copra, coffee, palm oil and cocoa. These arrangements helped perpetuate traditional trading patterns, while the smallness and fragmentation of the islands further restricted export diversification. There was little incentive for Pacific governments to expand product ranges or look for new markets, as the subsides encouraged the export of traditional commodities duty-free and at above world market prices. 

Today, Pacific island governments can rely less on special treatments for exports to traditional destinations. Economic separation is less feasible. Big trading partners like Europe, Australia and New Zealand are expecting the fledgling economies of the Pacific to liberalise, and quickly. With limited commercial experience, it should be no surprise that Pacific governments can appear intransigent.

The latest briefing paper released by the Pacific Institute of Public Policy provides an overview of the trade agreements facing the Pacific island countries. It concludes that Pacific island countries can move beyond trading in fish and coconuts, but only if each country develops and export-oriented trade policy and engages in trade talks. Many forms of integration are possible in the global economy. It is up to Pacific island governments to decide the kind they want.

DOWNLOAD BRIEFING PAPER